The Consumer Price Index report released last week by the United States Bureau of Labor Statistics shows that inflation has now reached a 40 year high of 7.5%. Businesses with pricing power could help pass some of those higher costs along to their customers. And stocks that pay dividends will provide a passive income stream that will help in offsetting inflation as well.

Investing equally in Kinder Morgan and Autoliv will give an investor an avg. dividend yield of 5.8% and exposure to various sectors of the economy. Here is what makes each of these dividend stock an excellent buy now.

A safe bet in the gas and oil industry

Rarely does an investment provide a blend of dependable value, income and a high dividend yield. Kinder Morgan offers investors this medley, but it is a stock that is usually misunderstood.

Investors usually pass up on buying Kinder Morgan thinking it is a volatile gas and oil stock. But in reality, Kinder Morgan produces a predictable cash flow from its terminals, storage, pipelines and other energy infrastructures. Over 90% of Kinder Morgan’s business is connected to fixed-fee and take-or-pay contracts. This predictability has given Kinder Morgan the ability to forecast its performance of 2020 with a 99% accuracy going all the way back to April 2020. It is also why Kinder Morgan has already provided its 2022 forecast for the full year.

Kinder Morgan believes it will produce slightly less adjusted earnings prior to interest, depreciation, taxes, and amortization and distributable cash flows in year 2022 than it did in year prior. But its net income should be at a five-year high.

Kinder Morgan is also increasing its dividend to $1.11 a share per year. The company’s strong DCF shows it can support its dividend with cash even as it boosts spending on newer projects and invests in growing its infrastructure in legacy natural gas.

Autoliv puts Safety first

The seatbelt, airbag and steering wheel business has a dominant position within the passive safety market, and it is also a safe way to play on a recovery in the light vehicle production around the globe. For reference, Autoliv has claimed 50% of all orders in its end markets in Q4, a figure higher than management’s target of 45% of the entire market.

It has not been great times for auto parts manufactures. A combination of increasing raw material costs, supply chain problems, and declines in LVP because of the auto chip shortage have driven down profit margins and revenue.

But here is the thing. Demand is still high, and auto chip producers are making massive investments to increase capacity. That isn’t to say the auto chip supply problem will end overnight; it won’t, as it will take time for new expansions and factories to come online. But this does mean that supplies will eventually increase.

Autoliv’s management predicts global LVP to go up by 9% this year. Moreover, given the exposure to several product launches and strong trends in passenger safety, management thinks Autoliv’s organic sales growth will be 20% this year.

Author: Scott Dowdy

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